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June 18, 2012

Fear and Yogurt in Greece: Where to Invest Now That Votes Are Cast

Stocks? Bonds? Yogurt? On the first day of trading after the Greek election, investors seek safety

Greece’s parliamentary election results are in, and now investors are voting on where they want to put their money.

After last weekend’s do-over of a recent election that failed to yield a governing coalition, U.S. markets opened Monday on a positive note, relieved that the vote went to the conservative New Democracy party, which favors austerity measures that would keep Greece in the eurozone.

But by midday, that relief had dissipated a bit as stock market watchers started to consider what’s next for the common currency. The Dow Jones industrial average was down 28.87 points, or 0.23%, at 12,738. However, the S&P 500 was up slightly by 1.28 points, or 0.10%, at 1,344, and the Nasdaq index was up 15.61 points, or 0.54%, at 2,888.

The markets’ mixed messages suggest that investors are seeking security—and analysts are shaking the bushes, looking for those safe havens, whether in stocks, bonds or commodities.

Here’s what the experts are saying about the best investments now that Greece has voted:

“Greece remains corrupt, over-indebted and uncompetitive,” says Leclerc in a statement. “There’s little prospect out of its de facto bankruptcy unless the people of Greece demand and receive real reforms. That is unlikely to happen in the intermediate term.”

With that gloomy outlook, where does Leclerc suggest that stock buyers invest their money?

“Fear and uncertainty is the friend of long-term investors because it lets you buy low,” Leclerc writes. “Many great European companies are now selling at valuations not seen since the lows of March 2009.”

Examples of Leclerc’s European stock picks, which offer dividends of between 4% and 6%, include:

U.K. large-cap retailer Tesco, which has grown earnings by 9% a year during the past five years. The company is in 14 countries, Asia accounts for nearly 20% of its earnings, and Tesco has a strong presence in its core U.K. market with a history of innovation and growth.

Pargesa Holding, a Swiss-based mid-cap conglomerate controlled by the billionaires Paul Desmarais and Albert Frere. Shares sell at a 25% discount to net asset value, which is composed mostly of six publicly traded European blue chips that are also attractively priced.

Van de Velde, based in Belgium, company with a $500 million market cap that has manufactured and sold undergarments for about a century. Shares are controlled by descendants of the founding families. The company has net cash, a high return on invested capital and roughly 10% annual growth since its IPO in the 1990s.

And finally: Greek yogurt, anyone?

Yes, the Greek yogurt race is heating up, according to both Dairy Herd and AdAge, which report that New York-based Chobani is currently the leader in the U.S. Greek yogurt market, followed by France’s Danone and Greece’s Fage brands.

PIMCO’s Bill Gross Not Yet a Buyer of European Bonds

Europe is merely a “localized tumor,” writes PIMCO Chairman Bill Gross (left) in his June market commentary. Bond investors should thus favor quality and “clean dirty shirt” sovereigns (U.S., Mexico and Brazil), along with intermediate maturities that gradually shorten over the next few years.

Also saying there are now too many sharks in the bond market, Gross on Bloomberg Television points to the surge in the Spanish 10-year bond. Yields are now near 7%, and Italian bonds are above 6%.

So is Gross a buyer of European bonds? No. Rates at the core are still too high and they need the private market to come back in, he believes.

“What Euroland and the EU and the ECB all together want is for the PIMCOs of the world and the Chinese to come back into the water,” he says. “Is it safe? PIMCO and others sense a lot of sharks out there, a lot of fins protruding into the surface. It’s not a safe environment as long as the EU and the global economy is de-levering.”

“In the event of market disruptions after the Greek elections the world’s central banks will, as always, do what is necessary to keep the financial system functioning. That is not the same thing as easing,” according to Blitz in his Monday report. “Nothing the central banks end up doing will address the fundamental imbalances adversely impacting global growth, especially those imbalances driving the European economy apart.”

Next Stop on the Troubled Eurozone Tour: Spain

When eyeing the future, investors will have to keep watching Greece—and pay attention to Spain, says Paul Christopher, chief international strategist with Wells Fargo, in a midyear outlook published Monday.

The European crisis remains the principal risk to global confidence. Although the Greek election results eased fears of a rupture in the euro zone, the prospect remains that a eurozone country may some day abandon the euro, Christopher says.

“Even the possibility of a eurozone split suggests that Greece, or possibly Spain, might choose to leave the euro rather than endure deepening austerity,” he writes.

Christopher doesn’t believe that Spain’s financial problems run as deeply as Greece’s do, however, and the cost of leaving the euro remains steep for Greece, Spain and indeed the entire eurozone.

“The Greek situation remains fluid, and political decisions could still split the zone,” Christopher says. “Still, we believe the most likely scenario for 2012, and perhaps into 2013, is that eurozone leaders will respond to their strong incentive to address the union’s immediate financial problems and the need for long-term economic growth.”

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